What do we make of this unprecedented period in our industry? In a world where markets rise and fall, we have at least been able to rely on freely entered contractual arrangements, protected by well-established maritime and contract law.
But now we have the Ocean Shipping Reform Act of 2022. Drafted and passed on a set of temporal facts, it codifies changes to the Shipping Act based on the most extraordinary circumstances. Our legislators unleashed the Federal Maritime Commission (FMC) to respond to the recent supply chain snarls and enacted a recipe for chaos.
As a notable example, in October 2022, the FMC issued a Notice of Proposed Rulemaking (NPRM), proposing that bills for demurrage and detention (D&D) only be sent to those contractually responsible for payment. Nonetheless, if the NPRM becomes final, many parties — including motor carriers, customs brokers, and possibly even consignees — that carriers bill today would no longer be deemed “billable parties.”
The FMC’s proposed rule reflects a remarkable disregard of extensive and settled case law on this issue. Courts charged with the interpretation and enforcement of maritime contracts have consistently taken a broad view on privity under ocean bills of lading. For centuries, consignees and other secondary parties across the globe have faced liability for unpaid D&D, even in the absence of a direct contract.
If the NPRM becomes a final rule, consignees and others, knowing they would face no secondary D&D liability, would no longer have any incentive to timely retrieve and return containers. Much more D&D would go unpaid without meaningful consequence and, certainly relative to any purported “billing confusion,” the impact on shipping fluidity would be enormous. Instead of addressing supply chain issues, a final rule that aligns with the NPRM would increase them.
Such myopic government heavy-handedness is clearly not the solution — it is the problem. And we all may need to deal with it going forward.